We consider the decline in bond yields justified and are more surprised by the robust equity markets. The tightening of monetary policy and the associated uncertainties in the banking sector will be reflected in weaker economic activity because of stricter lending terms.
A recession towards the end of the year seems likely, in our view.
Against this background, we are increasing our weighting in US government bonds and maintaining the underweight in equities. Valuations remain excessive, and we believe that the low equity risk premium does not fully compensate for the elevated risk. Within equities, we remain cautious, particularly concerning overpriced US securities, but we are also slightly reducing our overweight in Europe. We are adding to our positions in defensive Swiss large caps and emerging markets. We continue to rate alternative investments as attractive, in particular CAT bonds and listed Swiss real estate funds.